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Friday, August 1, 2014

Judge Blasts Argentina Over Debt Default

The U.S. justice overseeing Argentina's legal battle with holdout creditors blasted the South American country's government for defaulting on its debt.

“What occurred this week did not extinguish or reduce the obligations of the Republic of Argentina,” said District Judge Thomas Griesa at a court hearing on Friday.

"I'm counting on the Republic of Argentina to take steps in order to stop spreading deceitful information," added the magistrate who was reportedly in a very "stern" mood at the hearing.

Griesa ordered the Argentine government in June to pay holdouts some $1.5 billion in unpaid debts related to the country's $100 billion default in 2001. He barred Argentina from paying bondholders who participated in prior exchanges unless it pays holdouts at the same time.

On Wednesday Argentina defaulted for a second time in twelve years after the government and creditors could not reach a last minute agreement. This action could lead bondholders to claim an amount equal to Argentina’s foreign currency reserves (about $29 billion).

Griesa also ordered at Friday's hearing that both sides in the debate continue talks with a mediator he appoined, Daniel Pollack. That might still occur but within a climate of great mistrust after Jonathan Blackman, Argentina's lead lawyer, said a statement released by Pollack on Wednesday was "harmful and prejudiced to the republic and the impact on the market."

Griesa's actions have been criticized by Argentine officials as excessive, and consider the holdouts as "vulture funds" that purchased bonds at a low price and are eagerly looking to cash in.

“We can’t hold any positive expectations because (Griesa) has always held the view of someone who is partial,” Cabinet chief Jorge Capitanich told reporters in Buenos Aires prior to today's hearing.

Argentine president Cristina Fernandez said in a televised speech on Thursday, “the world keeps moving and Argentina too” yet the markets earlier that day did not seem to agree with her. The Argentine peso fell 2.6% on the black market in early afternoon trading while the Merval stock index tumbled by 8.4%.

The default comes at an inopportune time for an Argentine economy that officially slipped into recession in June. Fernandez might also suffer negative consequences as opposition politicos have blamed her administration for "lying" during talks with the holdouts.

The repercussions of a default on the global economy ld a group of more than 100 economists including Nobel laureate Robert Solow to urge the U.S. Congress to "act now and seek legislative solutions to mitigate the harmful impact of the court’s ruling."